NBFCs stand to gain from securitisation of co-lending books, says CRISIL

Four, co-lending arrangements may involve first loss default guarantees (FLDGs) from sourcing partners to compensate the funding partner for losses due to delinquencies in the co-lending portfolio.

FPJ Web DeskUpdated: Tuesday, December 13, 2022, 10:04 PM IST
article-image

Securitisation of co-lending records could be beneficial for Non-banking financial companies as a funding route, due to potential for enhancing credit and cost savings according to CRISIL Ratings.

Such securitisations involve unique legal and operational aspects. One, as the co-lending partners hold a portion of the receivables from the underlying loans, a partner can securitise only its share in the underlying borrower payments that contractually belong to it under the co-lending agreements. Two, the securitised receivables need to be bankruptcy remote from the co-lending partners to achieve delinkage from their credit risk profiles.

Three, co-lending arrangements typically provide for the larger funding partner to step in and replace the smaller sourcing partner as the servicer of loans if the collection performance of the sourcing partner is not satisfactory, thereby providing an upfront back-up servicer option for the securitisation transaction.

Four, co-lending arrangements may involve first loss default guarantees (FLDGs) from sourcing partners to compensate the funding partner for losses due to delinquencies in the co-lending portfolio. Assignment of such FLDGs to the securitisation trust, if operationalised, could enable better transaction economics by providing loss absorption against loan delinquencies.

Says Rohit Inamdar, Senior Director, CRISIL Ratings, “The advent of securitisation of co-lent loans underscores the role of innovation in bringing more loan portfolios under the purview of the securitisation market. Securitisation can enhance transparency regarding the quality of co-lent loans, thereby boosting market confidence on the sourcing, underwriting and servicing norms governing co-lending arrangements. This can, in turn, lead to more securitisation avenues backed by co-lent loans, enhancing the potential for NBFCs to manage their liquidity by deploying funds in high-yielding co-lent loans that can be released over the short-term through securitisation.”

(If you have a story in and around Mumbai, you have our ears, be a citizen journalist and send us your story here. )

(To receive our E-paper on WhatsApp daily, please click here.  To receive it on Telegram, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

RECENT STORIES

Union Budget 2023 LIVE UPDATES: PM Narendra Modi addresses nation, lauds tax relief for middle class

Union Budget 2023 LIVE UPDATES: PM Narendra Modi addresses nation, lauds tax relief for middle class

Union Budget 2023: From upskilling to job creation, here's what the government announced for Indian...

Union Budget 2023: From upskilling to job creation, here's what the government announced for Indian...

Union Budget 2023: FM Nirmala Sitharaman's paperless budget on mobile app; Download here

Union Budget 2023: FM Nirmala Sitharaman's paperless budget on mobile app; Download here

Union Budget 2023: FM Nirmala Sitharaman delivers her shortest speech lasting 87 minutes

Union Budget 2023: FM Nirmala Sitharaman delivers her shortest speech lasting 87 minutes

Union Budget 2023: Stock market investors celebrate, Sensex up over 1000 points post-budget

Union Budget 2023: Stock market investors celebrate, Sensex up over 1000 points post-budget